According to Bank of America, oil prices are going to face significant pressure in the coming months due to supply and demand risks.
Eight risks that could send oil up or down by $5 to $20 per barrel were highlighted in a Tuesday note to clients.
The manufacturing data shows that a contraction is likely. According to the note, a global downturn could cut oil demand growth expectations by over one million barrels a day.
BofA estimates that a deal to revive the Iran nuclear agreement could add up to 1 million barrels a day to the market.
Other members of the group would likely take some production out of the market.
With gas and electricity prices soaring to record highs across the continent, as well as more cuts toNord Stream 1, analysts said there is a chance that Europe and Asia could begin burning oil instead of coal and natural gas.
Bank of America believes there will be a lot of substitution due to the oil price risks.
According to Bank of America, the world's refining capacity has fallen by 2 million barrels per day due to shut ins and under investment.
Increasing crude supplies for refinery would make the current imbalances worse, but cutting supplies threatens to push prices higher.
Analysts wrote that the reduction in refining capacity has led to extreme movements in key product crack spreads.
The light- heavy differential is a key measure of energy markets.
Light-heavy differentials have gone from $3.5/bbl two years ago to $12/bbl today.
Oil prices could go up because of political uncertainty in Iraq and Libya.
In July of this year, Libyan production fell to 680,000 barrels per day. Iraq's oil production has increased since 2020 but that could change if there is a political conflict in the coming months.
The US is set to conclude releases from the Strategic Petroleum Reserve in October, and with strategic inventories falling over recent months, a gap in the market may emerge that could sway production.
The world's second largest oil consumer and refiner has imposed stringent COVID-19 lock-ups which have led to falling demand and sell-offs in oil prices.
According to BofA, if China signals an easing of virus policies, a potential reopening may be arriving in October.
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